Crunchbase data shows that venture funding for Web3 startups, which includes cryptocurrency and blockchain businesses, has declined significantly in the second quarter of 2023. Just over $1.8 billion was raised in total in 322 deals, a 76% decrease in fundraising from the same prior period. year. This reflects a 51% decline in transaction flow and a drop of more than three-quarters from the second quarter of 2022, when industry entrepreneurs raised more than $7.5 billion.

The first half of 2023 has been particularly challenging for Web3 startups. In the first half of 2023, these startups raised just $3.6 billion, which is a massive 78% drop from the nearly $16 billion raised during the same period in 2022. This is the slowest flow of deals since the last quarter of 2020, when only 291 deals were announced. for a total of $1.1 billion.

Large funding rounds played a large role in the dramatic year-over-year drop in Web3 funding. In the second quarter of 2022, the startups raised 15 rounds of more than $100 million each. In contrast, the second quarter of 2023 saw only three such rounds:

Islamic Coin, a Swiss-based Shariah compliant crypto asset, raised $200 million from ABO Digital.

LayerZero Labs, a Vancouver-based messaging protocol, closed a $120 million Series B funding round from 33 investors, including a16z crypto and Sequoia Capital, valuing the company at $3 billion.

Worldcoin developer Tools For Humanity, co-founded by OpenAI’s Sam Altman, raised a $115 million Series C led by Blockchain Capital, with participation from a16z crypto, Bain Capital Crypto, and Distributed Global.

Interestingly, despite a drop in VC investment, cryptocurrency prices have risen.

Bitcoin, the most prominent cryptocurrency, is up more than 80% this year, while Ethereum is up more than 50%. Both saw substantial growth last month when Fidelity Investments and BlackRock filed with the US Securities and Exchange Commission to launch the first US exchange-traded fund that makes direct investment in Bitcoin possible.

Even in this recession, investors continue to put small sums of money into companies like Auradine in Santa Clara, California, and Axoni in New York to advance Web3. However, the recent failures of major cryptocurrency exchanges and regulatory interventions in the US have likely discouraged some investors from venturing into the digital asset sector.

The future trajectory of Web3 funding is not yet clear, as current trends do not suggest a positive change. However, continued funding from quarter to quarter in 2023, with Q1 startups raising just under $1.8bn, could imply that investor interest in Web3 has reached an all time low and may level off or recover from here.

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